Gail Vaz-Oxlade's Blog, page 67

This & That: Kids & Money

Caroline wrote: We started to use the Weekly Jars and so far so good, and I (the culprit of spending) am quite enjoying it.  Now we want to incorporate the kids' allowance to start teaching them.  My daughter is 11 and my son is 9. I know that you say to pay $1 per year – that is fine.  Can you explain how the job jars are to work?  Our daughter is into fashion now and is very excited to plan and have money. Our son on the other hand wants to buy something as soon as he gets his hands on money!

The job jar is a way to get kids working for money above and beyond the allowance you're giving. You would create a list of jobs you need done and an amount you'd be willing to pay for each job. (It doesn't have to be a jar; it can be a list on the fridge, for example.) So, maybe you no longer want to clean the kitty litter and for that you'd be willing to pay $10 a week. As long as the job is done, you pay at the end of the week. Or you need the grass cut, and you'd be willing to pay $20. When the grass is cut, you pay up. Ditto loads of laundry, vacuuming, meal prep, weeding, bathroom cleaning, garbage collecting, dog bathing, garage cleaning, car washing…the list can go on forever… anything you wish someone else would do. Create the list of jobs you're willing to pay for (this should not be the things they normally have to do as chores because they belong to the family and have responsibilities around the house) and post the list or cut it up and let kids pull it out of a jar for a more random experience.

As for as helping your son plan his spending, get him to commit to something he wants that will take a few weeks' worth of money and make up a chart with a picture of the thing he wants. Then draw on boxes that represent the money he'll save each week. So if he wants a new game for this DS, that game might cost $40. If he's planning to save $5 a week, you would draw on 8 boxes (40÷5). Then each week as he sets aside his $5 (in a jar?) he can check off one of his boxes.

Jen wrote: On your show, you often recommend giving little kids $2 to buy 2 things at the dollar store.  I think it's a terrific idea because they have to learn to prioritize.  My question is about dealing with sales tax.  In Ontario, one item at a dollar store would actually cost $1.13, and two would cost $2.26.  Would you still give them the $2 but say "you can only pick one item (or spend $1.50 if you can find something for 50 cents)" or would you give them $2.30 initially?  Or, would you let them pick two items and then wait until they get to the register to find out they might have to put one back? (I can hear the tantrum as I type that!) I think tax is something that people (including myself) forget to budget for.  I taught a personal finance course where we had a budget project; some students forgot to account for deductions and sales tax and very quickly found themselves in a deep hole.

I certainly wouldn't let them find out at the cash register. I'm a big believer in kids succeeding and that would be a failure. Tax is not usually something that very little kids — dollar store shoppers — can wrap their heads around. If you want to introduce the idea of tax, then I would point out the tax I pay when I shop. Since they likely can't do the multiplication to figure tax out, this would just be an FYI discussion. As they get older and develop the skills to do the math, I'd ask them to calculate the tax on various items I was purchasing so the point would be brought home even further.

As for shopping at the dollar store, let them choose two things and you cover the tax… but point it out to them. "Hey, there's that tax again. When you're 10 and can do multiplication, you'll be able to figure that tax out for yourself." Something to look forward to!

Calie wrote: I was brought up by parents who didn't believe kids and money mixed. Family finances were never discussed in front of me. I would love to get some more info on children and money. My four kids (13,11,9,7) have their own saving accounts, however, I have control over these accounts. At what point do I let them control their own money? Is it a good idea to give your teen a credit card (a very small amount of course) so that they learn early on in life on how it all works?

Loads of parents wonder a what point do let their kids control their own money? ?As far as I'm concerned, from the very beginning. If kids don't have control over their money, it's not their money, it's yours and you're just playing a game. Your job as a parent is to set some expectations, and then take the opportunities to teach the lessons that come from the natural consequences.

As for the idea of giving your teen a credit card so that they learn early on in life on how it all works, it's a good idea. I'd start young kids (age 12+) out with a credit card on the Bank of Mom. You charge the item for them, you issue them a "statement", they have to pay you on time or you charge interest and/or repossess their stuff. Later – I believe they have to be 19 — you help them get a credit card with a really low limit so they can build some real experience.

Charlene wrote: You often give percentages for what people should be spending on things like housing and transportation. How much of your income should go towards your child's extra curricular (e.g., music lessons, figure skating lessons)?

As much as you want and can afford. I don't think it's any of my business to tell people how to spend their money. My thing is that people have a balanced financial life, covering all the bases, and not going into debt for crap. As long as you have no consumer debt, are setting aside some money for savings, and are living on a balanced budget, if you want to spend all the extra money that available on your child's extracurricular activities, have a blast.

Donna wrote: Gail, we've successfully implemented the kids' allowances using the 3 jars (spending, sharing, & long term saving). Our 11 & 7 year olds just love it! Now the question is where should we put the "savings" portion? They only get a penny a month interest while it's sitting in our bank's savings account. Where's the best spot for these kids to leave their money for the next 10-15 years? Thanks!

Have you tried ING?  I believe they were offering a bonus for new chidlren's accounts. And whatever they pay, it'll be better than you can get at a bricks-and-mortar bank. Once my daughter had accumulated $1,000 we switched to using GICs. Eventually, when she goes to work, I'm going to have her put the money in her RRSP, and invest it as part of that long-term portfolio.

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Go Green & Save

We are far more environmentally conscious than previous generations have been. Well, some of us are. But there are still a b'zillion people who are straining the environment – think bottled water consumers – because they haven't put much thought into what they're doing. The thing is, they're also blowing through scads of money.

Quite some time ago my producer came to set with a refillable water bottle in hand declaring she had no intention of drinking bottled water again.  It got me thinking: y'know, she's right. Even though I wasn't a massive buyer of bottled water – I see people leaving the grocery store with skids of water under their carts – it was time to make the commitment to carrying my own bottle around. Check.

There are so many examples of ways to replace environmentally unfriendly habits with friendly ones and save money too.

1. Are you still paying 5¢ a bag when you're out shopping? Did you notice that if you're also paying HST the price went up to 6¢ in some places? Keep a stash of bags in the car, or a couple rolled up really small in your purse so you don't have to shell out good money.

2. Still getting your coffee or tea is paper or Styrofoam cups? Get with the program. Buying a reusable coffee mug means you not only cut down on waste, you'll save money on your refills.

3. Getting gobs of junk mail that fill up your recycling bag? Call and stop those catalogs from arriving. And if you're still getting paper versions of your bills, switch to e-bills and save yourself the filing!

4. If you're still buying lunch at work, and need another motivation to bring lunch from home, think about all the containers you end up throwing away at the end of your meal. And so many of them are Styrofoam! Yuck! Pack your lunch in reusable containers and not only will you be doing good, you'll find scads more money in your budget available for saving!

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Debt Hell

We know there are plenty of Canadians in debt. The news has been full of stories about just how close to the edge we've been living.  Consumer debt is at record levels, and continuing to grow even after all the big-wigs have come out saying, "people curb your spending on credit!"

When I polled this audience to see how many people had availed themselves of credit counseling services, 9% said yes. When I asked how many had done a consumer proposal, 5% said yes. And when I asked how many had declared bankruptcy, 7% said yes and another 3.5% said they might need to soon. Cumulatively that 24.5% who are in a financial bind.

On average, according to TransUnion (and they would know), Canadians owe $26,000 not counting their mortgages.  I don't owe a penny, so someone else has my $26,000 in debt. And since some people have piled their consumer debt into their mortgages, effectively hiding it from this report, the picture is really grim. Average household debt measured against income hit a record high of 147%.

The chief economist for RBC Global Asset Management has been quoted as saying that when interest rates do start to rise it will be very painful for some.

Perhaps the thing that makes me scratch my head the most is the fact that older Canadians are racking up debt at a wicked clip. Just when folks should be piling money away for the inevitable day they must hang up their spurs, they're out spending money they don't have.

According to an Ipsos Reid survey conducted for TD Bank, people 44-64 years  and 65+ years are the two groups for which debt growth has outstripped asset growth over the past ten years.  And don't think that's because the hydro bill has gone up. Nope, seniors are spending on luxury items.

Have we really learned NOTHING from our American cousins? Are we so hell bent on having a good time that we're going to continue to ignore the implications of spending money we haven't yet earned? What will it take for us to wake up to the reality that debt is a disaster waiting to happen?

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Save your Taxes

People are always telling me why they can't save. In the next breath they tell me about the tax refund their getting. And when I asked who was getting refunds, 75% of the people who responded said they were getting money back.

Why would you give the government an interest-free loan? Don't the 38% of people who "got back a big refund" realize that they could be earning interest on that money they're lending to the government interest-free. It may not be a lot of interest, but 2% is still better than 0%.

Want to keep more of your money in your pocket where it'll do YOU some good?

Here's a form that very few people use, but is remarkably useful for keeping money out of the government's hands: Form T1213. This form let's you request permission from the Tax Man to have your employer reduce the amount of income tax taken off of your paycheque every month.

If you can demonstrate that you're eligible for certain recurring deductions that will reduce your tax bill at the end of the year – you can trade in your tax refund for more take-home pay. Do you make monthly RRSP contributions by way of pre-authorized withdrawal? You're eligible. How about child-care expenses? If you're tithing monthly you can do it for your charitable donations. If you have rental losses, interest expenses on investment loans or carrying charges, those are eligible too.

You'll have to fill out the form and send it to the Tax Man each year. And NOW is the perfect time for 2012. Once you're approved, the Tax Man will provide instructions by letter to you, which you then give to your employer, who will adjust your pay for the remainder of the year.

Fill out Form T1213 and get the Tax Man's approval and instead of paying extra tax and getting refunded, you'll pay less tax on an ongoing basis so you'll have more cash that you can then use to establish an automatic savings plan. Whether you send that money to your RRSP, your TFSA or your high-interest savings account, it's way better in your hands than in the tax man's.

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Scared Silly

Have you noticed the rise of fear-based advertising? Of late marketers have switched gears from enticing you to buy to scaring you into spending your money. The most ludicrous example of this is the automatic soap dispenser. The first time I watched this ad with my daughter, we looked at each other and burst out laughing. It was a scare-ad gone bonkers! The premise is you won't have to touch the soap dispenser where all the deadly germs reside, you can simply slide your hands under the dispenser and you'll get a serving of soap. Hey, aren't you about to wash your hands anyway?

Left to marketers, you'd spend all the money you should be saving warding off the heebie-jeebies. There's the toothpaste that's going to protect your enamel from eroding. There are the germs on your counter-top that will make your whole family sick. And there are the criminals waiting to steal your stuff, your car, your financial identity.

The thing that should really be scaring you is how easily you're being manipulated into spending money you should be setting aside for the future. If you allow the fear-mongers to 'motivate' you to buy something you really don't need, you're not only leaving yourself exposed emotionally (why would you give them that kind of power over you?), but also financially.

While most of us are loath to admit the fear-factor works – it makes us feel like wussies – fear ranks as one of the strongest motivators and advertisers are blatantly using it to scare the britches off us.

Who hasn't watched a home security ad and thought, "Gee, $24.99 a month is nothing for the peace of mind I'll get from having the 'free' system."  You may even have had the same thought watching the ID-theft ads.

You would think that in this day and age of rabid cynicism few people would fall for the fear-inducing marketing ploys, but fall people do. Before you follow your knee-jerk response to protect yourself and your family by coughing up some hard-earned dough to ward off the bogeyman, do some research. Don't buy simply because a marketer has pushed the right button.

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What Drops Off Your List

Expenses are always going to go up. That's life. Gas prices go up. Electricity costs go up. Sometimes it's food. Sometimes it's the cost of housing. Sometimes it's because you've made choices: moved to a more expensive part of the country; added to your family; taken a job that requires more of a commute.

Ultimately you have to deal with the increases in costs by trimming some other part of your budget.

But what if your costs have gone up because you're embracing things as needs that are really wants? How many people are walking around with smart phones and big fat data plans, which they are using strictly for pleasure? Hey, if you take your wants up by $120 a month for a phancy phone, what drops off your list so you can afford to pay for that phone?

On Princess, I use a pie chart that shows 10% savings, 15% debt repayment (you remember this from TDDUP), 50% needs and 25% wants (that's the new part.) If you can trim your needs down, you get more wants. But if you only have 25% for wants, and your cell phone bill is taking a big bite out of that pool of cash, what else are you prepared to give up to keep the phone?

All too often we let our expenses go up without giving any thought to the fact that the amount of money we have to spend is limited. And because we haven't thought it through, we end up carrying the balance on credit cards or sliding it on to our line of credit. Then we wonder why we're in debt.

Each time you add a new expense to your life – or each time an expense increases – it's a reason to revisit your budget and look at where you're going to take the money from to cover the new cost.

Money is a finite resource. If we treat it like it's unlimited – using credit to make up the difference – we end up paying hugely in terms of both interest and future options. If we're constantly aware that a dollar spent today means one dollar less tomorrow, we're much more likely to keep on the right side of the balance sheet.

Whether you're adding daycare to your budget, working a new car payment into the plan, or adding hockey, soccer or swimming to your children's activity lists, have you looked at your budget to see where you're going to get the money to pay for it? And what are you prepared to give up to have the next fancy whatever that comes along and catches your eye?

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So Sorry

I've had a blip in my system, which is why there was no blog on Monday and Tuesday. When I saw the outpouring of love, I cried. You guys are so kind to me. There's nothing wrong, my life is good and I am happy. Thank you all for your thoughts and kindness. Back to normal tomorrow. Hugs, g

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Almost The Holidays

I'm looking forward to the holidays. I have always loved Christmas, even though we do not celebrate it in a religious way. It's the spirit of the season, the flash and the glamour that I love. This Christmas is going to be very different from Christmas Past. Everyone is working or in school almost right up to the Christmas weekend so there's less time for the build-up.

Boyo spends Christmas day with me and then heads back to his dad's for Christmas evening and Boxing Day, which is his father's birthday. So this year Baby Girl and I are jumping on a plane and heading to Arizona for five days of sun and pampering. (You'll see some best-of blog repeats during that week.)

It's been a long and very busy year for both of us. Having five days to just be together laughing and loving the sun seems like an enormous gift. Since she's gone off to university, I find any time I get to spend with Alex to be a huge present. And I cherish every minute. So there won't be a ton of stuff under the tree this year; we're going with experiences. (Boyo gets a trip in March when he's on school-break.)

Boyo did ask for an iphone for Christmas. Actually, he wanted one way back at the beginning of summer and was perfectly happy to pay for it himself. My problem with Malcolm is that he never wants anything… very low needs/wants kid… so I'm loathed to let a gift option pass me by. I talked him out of buying it and offered it to him as his Christmas/Birthday present. I wanted him to defer the gratification and experience the anticipation for a while before scratching the itch. He acquiesced.

I find that as I grow older I want less and less. Time with family and friends is far more important to me that yet one more whatever. I lead a simple life, but there's not too much that I want that I don't already have. New acquisitions tend to be books, tea, and recreational supplies like canvases and yarn… not really "big ticket" items.

Last year Alex went into a kitchen store and asked them to produce something "new" that I might not have. After several "no thanks, she's got that," she was offered an ebelskiver pan. It makes round pancakes into which you can put fillings. I've become a bit of an ebelskiver aficionado, filling with savoury and sweet and having a blast with my new toy. So it was a thing that led to wonderful experiences feeding people! That's my kind of gift.

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This & That: Making Changes Edition

P wrote: We are both 32 and got married about a year ago but have been living together for 6 years.  We had combined student debt loads of about $40,000.  We have rented and lived very frugally (I have a second job) and managed to pay that down to about $16,000.   This is all student debt – we don't carry credit card balances, have no car loans, etc.  We would have had this paid off in about 1 year and be set to start saving for a down payment.  We have no savings as ALL our extra cash has gone to debt repayment.

Here's the problem.  I am pregnant – not really a problem, but a kink in the financial plan.  Turns out, I am having twins!  I am due in about 6 months.   Our apartment is simply not big enough for our growing family.

So, to rent or to buy?  Our parents have agreed to help us with a down-payment and we have been pre-approved for a mortgage.  However, my husband makes significantly less than I do, and I am worried that on one income (mat leave income is really peanuts, as it turns out) we will not be able to afford mortgage payments, taxes, insurance, etc.  While we might be in a tight spot for as long as I am on mat leave, when I go back, we should be able to afford it alright.

My mother in law has offered childcare twice a week, and my husband would work only 2 days a week.  We are very happy living simply. I have done the math and the mortgage and related costs would only be a few hundred dollars more that what we would have to pay in rent on a 2 or 3 bedroom apartment  (we don't need a castle!).  We have a low-interest line of credit at our disposal should we run up against it, and we'd be able to pay this off when I am back at work, although neither of us relishes the idea of getting into more debt.  My husband has offered to get a second job…but I don't know. If only he could stay home and breastfeed!

Gail says: It's always tough when needs change and you can see the light at the end of the tunnel but you're wondering if it's daylight or a train coming at you! Here's the problem I have with you going into debt while on mat leave, which you most certainly would have to do if your husband doesn't take more work: what happens if YOU find yourself unable to work and now you've got a mortgage and DEBT! It's great that your parents have offered to help. But I think you will only be safe if you ensure you can carry that mortgage no matter which one of you is working. I take it you have no emergency fund right now either? See, that puts you in a precarious position.

Here's what I suggest. If you want to buy the home then make sure your husband is working enough to be able to carry the budget on his own. Yes, counting your pathetic mat leave income. (You can't believe the number of people who think mat leave is enough!)

Get practicing now. He ramps up his work, you live on his income (plus the portion of your income that represents what you would get from EI) and bank the rest of your salary to build up your emergency fund. It's a trial run to see if you can do it. If you can't do it, then you'll know the house is out of the question.

As for incorporating twins into your life, you have been doubly blessed and I wish you all the joy in the world.

Josie wrote: I've always wanted a place of our own and we've been married almost 4 years but have been living with my husband's mom since the beginning. Initially it was because he was a student and only I was working but for 3 years now we've both been working and have saved a really solid downpayment for a home. My husband is scared of a mortgage and right now I know the economy isn't that great, however we both have good jobs. I make about 55K and he makes 65K. We are in our early 30's and have one child so far.

I want to move out but don't want to make my husband resent me because of all the expenses and debt home ownership brings. How can I reassure him?

Gail says: Why don't you make a game of it: a dry run. You find a picture of a home you'd like to live in, figure out what it would cost to move there (purchase cost, closing costs, moving costs, etc.) and live there (mortgage payment, taxes, utilities, maintenance, insurance). Then you take that much money out of your cash flow every month. Put it in a savings account to build up your downpayment even more or to create a good emergency fund. Live like that for about six months. If it's working for you, he'll feel more confident making it "real". If it doesn't work for you, you can adjust your expectations — the size or location of the home, etc.

Patsy wrote: Our income has dropped by about 60%.  We have done the budget and understand that everything is averaged into jars on a monthly basis. My question is, the money for vacation and items that I have included that come along once twice and three times a year (sports, equipment, Christmas), does that just sit in my jars from week to week?  I am afraid that will get spent before I require it. First I have to try and make up the 1,100 I am shy a month.

Gail says: Open up a savings account and put that money into the savings account every month. You can track what you're accumulating on paper under several headings like "sports" and "Christmas" or you can open up several savings accounts (they're free) if that makes it easier for you.

Vern wrote: I work for a company that allows us to put 20% of each paycheck into a shares account. The company then matches it as long as it stays vested for 1 year. This has been a great saving plan for me however I am $17,000 in debt. My question is this, the 20% I put in every paycheck leaves me in the red and therefore I use my credit card. Is it a good idea to lower what I put in to 10% as you suggest in your book or should I keep it at 20% as my company matches that money?

Gail says: Going into the red isn't a smart move. You have a choice to make. If you really like the savings-matching program, cut back on your spending so the 20% doesn't drive you to use credit. If you can't do that, cut back on your savings. BTW, you should not allow that money to accumulate solely in your company's shares past the one-year mark that you must hold them. Over time, should you do this, your fortunes will be tied to the company's performance. If it starts to flounder, so will your investment portfolio. Having all your eggs in one basket is NEVER a good idea.

Andi wrote: My husband and I want to have a child in the next couple of years.  We would like to start practicing living on what our income would be when I'm on mat leave and saving the difference in preparation.  Currently we each put 10% of our gross income into out RRSP automatically. I'm having trouble figuring how I will save that much with only 55% of my salary. Our only debt is our mortgage.  We have increased the amount of our bi-weekly payments. Should we be able to keep our savings rate while I'm on leave or can we back off a little with the either the savings or the increased mortgage payments?

Gail says: You should definitely back off on the savings and increased mortgage repayment while you're on mat leave. Living on substantially less, your goal should be NOT to increase your debt, but to live within your means. As long as you do return to work, the short break won't harm your plan substantially. If you choose not to return to work, you will have to re-jig your plan to put savings back in.

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Stifle Small Debt Infections

It's easy to catch a cold, and it's tiresome when that cold then turns into something more serious like a sinus infection or even pneumonia. But just as a little thing can become a big thing when it comes to our health, so to can small debt infections become full-blow disease, rotting your resolve and ruining your plans for the future.

It may be no big to carry a $200 balance on your credit card when the option is to leave your car in the shop because you don't have the money to pay for repairs. And if you don't spend another penny until that $200 balance is gone, you've applied the right medicine to a short case of the debt-flu.

However, if you let that $200 balance spread to $350, $500, $775, you'll soon find spending viruses and buy-now-pay-later bacteria of all kinds clamouring to gobble up your good intentions.  In no time at all you'll have a full-blown case of debt misery, and it'll take nothing short of an amputation to get yourself financially healthy again.

No, I'm not suggesting your cut off your fingers! But how about cutting up your cards? You don't have to cancel your accounts… just remove the temptation to spend by eliminating the plastic until the account is back in the black. Then you can order a replacement card and go back to using your credit cards as a convenience, as opposed to being held hostage to high interest rates and all kinds of stupid fees.

What if you never seem to be able to say no when the consumer bug bites? Then don't take your cards with you unless you're shopping with a list for specific items. Before you head out, write the amount you plan to spend (because you have the money in the bank to pay off the balance) on a piece of paper and wrap it around your card. As you shop, deduct what you're spending from the amount you wrote. You'll know exactly how much you have left to spend. When you get home, don't wait for the bill. Go online and pay off your day's charges.

There are times when credit is useful. There are even times when you can't see how to get from here to there without racking up some debt. That's the cold. Let that debt fester, let it continue to grow, and you'll find yourself dog-sick and in need of some major medical intervention to cure your debt malaise.

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